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Evaluation of the Effectiveness of Deregulation on the Downstream Sub-Sector of the Nigeria Petroleum Industry
Chapter One
Introduction
1.1 Background to the Study
Nigeria as a nation over the years has been
faced with an unresolved policy implementation which is the deregulation of the
downstream sub-sector of the petroleum industry in order to get maximum
benefit. The hike in pump price of the premium motor spirit (PMS) can be traced
from the Gowon administration (1966 – 1975). It was an administration which
boasted of the onetime popular adage „‟money is not the problem of Nigeria but
how to spend it. However, the regime pioneered the increase in the pump price
of fuel from 6 Kobo to 9.5 Kobo; subsequent government administration followed
the trend. None of the previous fuel price hikes transformed the country from
its dependency nature or diversified the economy. This is in spite of the fact
that Nigeria, in addition to having three major oil refineries also imports
refined products to satisfy its domestic consumption. In Nigeria there are
negative effect of the incessant increase in price, instability of the supply
and distribution of Premium Motor Spirit(PMS) as well as availability of the
products. Premium Motor Spirit is needed to power automobiles where people from
all field of their endeavours need for their daily activities. Similarly petrol
is needed to power generating sets in the country, because the electric energy
supply from Power Holding Company of Nigeria (PHCN) which is not regular and
has been described in many quarters as epileptic. The instability in the supply
and distribution, shortage in supply, long queues at the filling stations,
hoarding of the product have a way of affecting the Nigeria economy negatively.
The deregulation of the downstream sector, as initiated by the Obasanjo
Administration in 2003, involved not just the removal of government control of
petroleum product prices but also the removal of restrictions on the
establishment and (Adegunodo, 2013) operations including refining, jetties and
depots, while allowing private sector players to be engaged in the importation
and exportation of petroleum products and allowing market forces to prevail
(Okafor, 2004).Generally, the federal government has been in the process of
total reforms of the Nigerian petroleum industry since 2000.Deregulation is a
universal development which is a product of economic globalization by these it
means that deregulation brings about opening up of the downstream sector to
different players through increase competition in the long run it would lead to
lower consumer’s price. Deregulation is freeing of government control from the
regulation of a system in order for countries to lessen public sector control
and develop an open market while ensuring adequate supply of product. For the
policy to be successful in countries, they had to strategically map out an
effective policy response which transcend into full deregulation. This policy
has been successful in some countries of the world like Peru, Chile, Argentina,
Mexico, Japan, and USA among others. In Nigeria today, the issue of
deregulation of the downstream sector of the Nigerian petroleum Industry has
been on for decades without any visible decision in sight. The surest point
around the issue is the debate for the removal or sustenance of subsidies for
refined products. However unexpectedly, the result of the deregulation has not
been encouraging (Lawal, 2014). There has been continuous increase in petroleum
prices with continual scarcity of petroleum products, pipelines vandalisation,
large scale smuggling, and low capacity utilization at the nation’s local
refineries (Ehinomen & Adepoju, 2012). As reported by the Nigeria National
Petroleum Corporation (NNPC) in (2019) Smugglers of Premium Motor Spirit (PMS)
popularly called Petrol, smuggle the commodity to as far as Burkina Faso, Mali
cote d’vore. Neighbouring countries like Ghana has also been one of their base
and these is as a result to the price difference of PMS between Nigeria and
West African countries.
The government posited that the prices
would only rise in the short-term. Comparing the situation to the development
in the telecommunications industry, the government argues that the only way to
arrest and correct the structural distortions in the sector is liberalization
that would encourage businessmen to invest in building refineries and importing
products to sell at prices dictated by the market (Adagba, Eme & Ugwu)
(2012). However, this is an argument not supported by empirical evidence.
Diesel and engine oil prices have been deregulated for years. Yet, unlike the
situation in the telecommunication industry, the prices have been going up. It
was expected that deregulation would give room for competition which would
transform to price reduction and excellent supply and distribution network
(James, 2013). In one breath, the government says it has deregulated the market
partially yet same government does not want to rule out the continuation of the
payment of subsidies. This reflects indecision on a critical issue such as
this. Since deregulation was a major point of discussion during the last
election campaigns in 2014 - 2015, the present government administration of
President Muhammad Buhari ought to have taken time out to debate the issues
surrounding deregulation and take a major tangible decision to improve the
downstream sector. The inability of previous governments to be decisive on this
issue is part of the reason why growth in the downstream subsector in Nigeria
is stunted. Nigeria in the last five years has consistently spent over 1
trillion naira that is about $5b USD annually on petrol subsidies and lesser
amount has been spent on road construction and other infrastructural
development (note that only N20billion was spent on roads in 2015). However
over 1 trillion Naira was spent on petrol subsidies in the same year. The major
reasons given by those who resist the deregulation of the downstream sector of
the oil industry is that if subsidy on petrol is removed, the cost of pump
price of petrol will increase.
NB: The Complete Thesis is well written and ready to use.
